Vast Potential in Vietnam Retail Market
Strong growth indicators make Vietnam attractive destination for retail investment
Issue: Mar 2010
Saigon Trade Centre in Ho Chi Minh City, Vietnam
Vietnam continued its dominance in the top 10 emerging global retail markets in 2009, according to A. T. Kearney’s Global Retail Development Index1. However, it has moved down five places to sixth position in the 2009 index from the topmost slot in 2008, behind India, Russia, China, UAE and Saudi Arabia. A. T. Kearney attributed the decline to inflationary pressures in the latter half of 2008 and a significant slowing in consumer spending in a largely export-driven economy.
Despite its drastic fall in rank in 2009, Vietnam remains an attractive destination for retail investment due to its strong GDP growth, changes in the country’s regulatory structure - favoring foreign investors and increasing consumer demand for modern retail concept.
Strong GDP Growth
With an economic growth of 5.3% in 2009, Vietnam appears to be outperforming its neighbours at the present time and is at a more advance stage of economic recovery. The real GDP growth rate for 2010 is targeted at 6.5% by the Government.
Modern Retail Concept
According to the consumer survey done by AC Nielsen Vietnam in November 2008, Vietnamese consumers prefer to shop in modern retail centres than traditional markets. Another survey conducted by Saigon Marketing Newspaper in 2008 also reveals that around 50% of the consumers in Ho Chi Minh City are purchasing goods in supermarkets while only 15% buy products in traditional markets. The reason is that modern retail centres are becoming more convenient since they are opened for longer hours, have more diversified products, hygienic space and fixed pricing.
Favorable Regulatory Structure
Vietnam’s membership in the World Trade Organisation has led to a rapid growth in Vietnam’s retail market in the recent past and made the country an attractive destination for multinational retailers. To date, the country has about 400 supermarkets and 2,000 convenience stores, operated by both domestic and global companies. Many global retailers are well established in Vietnam, including South Korea’s Lotte, Japan’s Seiyu, France’s Big C, Malaysia’s Parkson, Hong Kong’s Dairy Farm and Germany’s Metro. Domestic retailers are expanding rapidly in the face of foreign competition. Saigon Co.op is expanding its supermarket and convenience food chains nationwide.
In addition, Vietnam has strong fundamentals. In particular, the dominance of youth in Vietnam, an important driver of economic growth, as well as the retail market. According to the General Statistics Office of Vietnam Census 2009 Report, about 66% of Vietnam’s population is between 15 and 59 years of age. This is its largest spending group and it is expected to fuel the retail market growth.
The rate of urbanisation provides an engine for the retail market. In 2009, 29.6% of the population in Vietnam lived in cities. This works out to close to one million of rural-urban migrants per year. The high rate of urbanisation implies strong long-term demand for all property types including retail.
The number of mid and high income people has also been growing rapidly. As at end December 2009, about 17% of Vietnam’s population makes US$250 to US$435 per month and higher (Savills Retail Market Report 4Q09). The number of mid and high income people has been increasing quickly and it is expected to reach 25% in the next couple of years.
The value of retail sales in Vietnam has expanded rapidly over the past few years. It reached close to VND1.2 trillion in 2009 from around VND200 billion in 2000 on account of rising consumer expenditure and changing market dynamics. With its strong fundamentals, the value of retail sales is expected to surpass VND2 trillion by 2012 (Vietnam Retail Analysis – 2008 to 2012 by RNCOS). Modern retail channels are expected to play a crucial role in the future growth of the industry, improving their position in the market.
Source: General Statistics Office of Vietnam
All in all, Vietnam retail market is in its infancy. With its strong fundamentals, healthy GDP growth, a favorable regulatory structure and increasing consumer demand for modern retail concept, there is a huge potential for retailers to build brand loyalty and influence consumption patterns.
Article contributed by Dr Boaz Boon and Neo Poh Har of CapitaLand’s research team
1The A. T. Kearney Global Retail Development Index (GRDI) ranks 30 emerging countries in terms of retail development potential on a 100-point scale. The higher the ranking, the more urgency there is to enter a country. Countries were selected from a list of 185 based on three criteria namely country risk, population size and wealth. GRDI scores are analysed based on 25 macroeconomic and retail-specific variables.